Biting truth of sanctions

From aspirin to multivitamins, Iran is finding it hard to pay firms for medicines and other imports. This is testament to the effectiveness of financial sanctions imposed by the US.

WASHINGTON: Like everyone, Iranians need diapers. Fred Harrington has built a business by selling Iran the raw materials tomake them.

The Redmond, Washington, businessman, who exports to Iran under a humanitarian licence from the US Treasury Department, said he was owed close to us $3.8mil(rm11.7mil) by Iranian companies who could not pay him because of the latest US and European Union sanctions. He is not alone. US firms from major drug makers like Merck &Co to mom-and-pop outfits like Harrington’s American Pulp & Paper Corp are finding it hard to get paid even for medicines and other humanitarian exports explicitly allowed by the US Treasury, according to officials, sanctions lawyers and the companies.

“Everything from aspirin to multivitamins – you name it – it’s all jammed up,” said Cari Stinebower, an international trade lawyer with Crowell &Moring, a Washington, Dc-based law firm, and a former counsel for the Treasury Department’s Office of Foreign Assets Control (OFAC).

The payments gridlock is testament to the effectiveness of the latest round of financial sanctions, which aim to force Iran to curb its nuclear programme and which have made the Iranian banking sector even more radioactive for major global banks.

But they also undercut the longstanding US argument that its sanctions are not meant to squeeze the Iranian people but rather the Islamic republic’s leaders and their suspected pursuit of nuclear weapons.

“I am not against punishing Iran for being a rogue country but the United States, or the Europeans, when they start imposing sanctions, they must consider also their own companies,” Harrington said.

Harrington, an Iranian American who changed his name from Farhad Fouroohi, had to lay off three people because of the payments delays, cutting his staff from seven to four.

While a new US law targeting financial institutions that deal with the central bank of Iran has garnered much attention, sanctions lawyers said the Jan 23 blacklisting of one Iranian bank had a more immediate, sharp effect on humanitarian trade.

Bank Tejarat, Iran’s third-largest bank, was “designated” – or blacklisted – under a US executive order targeting people and companies that promote the proliferation of weapons of mass destruction as well as their support networks.

The action has the effect of cutting them off from the US financial system, along with any bank who deals with them – a risk that many banks find impossible to take.

Over the last five years, the Treasury has blacklisted 23 such Iranian-linked entities, gradually squeezing Iran’s ability to do business with the world.

Tejarat’s blacklisting has had an outsize impact, sanctions lawyers said, because it had been the last major Iranian bank available for legal trade with Iran.

With it now off limits, companies are having to sift through smaller banks to find some that can carry out the transactions – which is no mean feat.

“That has had a huge ripple effect,” said Douglas Jacobson, a Washington attorney.

“On the one hand, you can get a licence. The government is saying, ‘OK you can sell’. But the practical reality is that you can’t get paid,” he said.

The lawyer said one of his clients was out several hundred thousand dollars because of the Tejarat blacklisting and that he knows of several medical companies that had stopped exporting to Iran because of the payment problems.

“Where you had a small window of opportunity previously, that window is now almost completel yclosed,” said Erich Ferrari, another lawyer.

The decision on Thursday by Belgium-based SWIFT, the world’s biggest electronic payment system, to expel all Iranian banks blacklisted by the European Union, may make it even harder to conduct transactions, sanctions lawyers said.

The United States has gradually tightened sanctions because of Iran’s failure to answer questions about its nuclear programme, which washington and its allies suspect is a cover to develop nuclear weapons. Iran says it is solely to generate power.

The sanctions became much tougher when US President Barack Obama on Dec 31 signed a law designed to choke off Iran’s oil sales by threatening to cut off foreign banks from the US financial system if they dealt with Iran’s central bank.

And if ordinary Iranians ultimately suffer shortages of drugs and medical devices, the Iranian government may use it to score public relations points with their own people against the West, much as former Iraqi dictator Saddam Hussein did in Iraq. — Reuters